One of the trendiest real estate investing techniques around today is called “flipping or wholesaling real estate”. This technique is so popular because it requires no real investment money, no credit requirements and pretty much, no real estate investing experience. It’s the age-old process of buying something at wholesale cost and selling it retail, but with a slight twist, you actually sell the product without ever owning it. Once you complete the sale the investor can walk away from the closing table with anywhere from 10 to 50 thousand dollars on average.
By now I’m sure you can see why this method might be so well liked especially among beginning real estate investors. There are several so-called real estate gurus out there selling books, cd’s and tapes on the subject for hundreds of dollars but this is one the easiest investing techniques to do.
Let’s explore what flipping houses entails.
An investor locates an under valued house, preferably a property that needs only cosmetic repairs or what we like to call a “sugar coat deal”. This means a house that will only need paint, carpet windows or some other very minor repairs, definitely no structural issues or roof replacement deals. You really want a house that has been neglected a bit, one that the seller hasn’t kept up very well. These types of properties can be spotted very easily because they stick out like a sore thumb in a well-kept neighborhood. The paint’s peeling, the grass is uncut, it needs replacement windows, etc.
Plus you will make the most profit from finding the worst house in the best neighborhood, if that makes since. You want to do this because when it comes time to sell, you want to be able to get the highest value, make your profit, while leaving some equity on the table for the homebuyer.
Once you’ve found this type of property, then you need to put it under contract and lock up the deal. There’s a couple of ways this can be done.
1. You can put an option on it.
(What’s an option?)
A unilateral agreement binding the seller to selling a property to you exclusively, for a predetermined price, but at a later date sometime in the future.
2. Have the seller sign a purchase agreement that gives you say, 90 days to close. This is called a buyer favorable purchase agreement. It is designed to help you, the buyer.
3. Land contract or contract for deed.
(What’s a land contact?)
A contract used in a sale of real property whereby title to the property remains vested in the seller until the buyer who receives the right to possession has paid in installments over a long period of time a preset amount or all of the purchase price and upon default by the buyer all payments may be forfeited. Also known as a Conditional sales contract, an Installment sales contract and a Real property sales contract.
There’s a few other ways to lock up a deal also, just make sure you don’t spend any money until you have the deal secured but let’s move on.
When you have secured the deal, then you start making the necessary repairs to bring the property back up to the neighborhood standard. That’s when I like to start looking for a buyer, while I’m actually making the repairs, just to get a head start. This makes the transaction go a little smoother.
Now remember, when you bought the house, you paid a discounted price because the home needed repairs. But now you’ve the repairs and the home can be sold on the retail market to a retail buyer. This is where you make your profit!